Bonnie Murphy Chief, Branch of Industry Pricing Division of Industrial Prices & Price Indexes

1. U.S. Producer Price Index for Commercial and Industrial Machinery and Equipment Maintenance and RepairNAICS 811310 Bonnie Murphy Chief, Branch of Industry Pricing Division of Industrial Prices & Price Indexes U.S. Bureau of Labor Statistics 27th Voorburg Group Meeting Warsaw, Poland 2 October 2012

2. Agenda • Definition of the service being priced • Pricing unit of the service • Market size • Classification structures • National accounts concepts • Pricing methods • Quality adjustment • Evaluation of comparability with turnover/output measures • Summary

3. Definition of the Service • Primary output is the repair and/or maintenance of commercial and industrial machinery and equipment. • Inspection and testing services when performed in conjunction with repair or maintenance services are also considered primary to this industry.

4. Pricing unit of measure • For most service items: per repair or maintenance job • For maintenance contracts: per month or per year

5. NAICS 811, Repair and MaintenanceTurnover by NAICS 4-digit codeSource: 2007 Economic Census The U.S. PPI currently only produces indexes for NAICS 8113.

6. NAICS 811, Repair and MaintenanceEmployment by NAICS 4-digit codeSource: 2007 Economic Census

7. Classification Structures • NAICS 811310, Commercial Machinery Repair and Maintenance, includes repairs classified in all 4-digit classes in ISIC 331, Repair of fabricated metal products, machinery and equipment • NAPCS codes for 8113 are based on the industry where the repaired product is used. • For example, NAPCS 1.1.1 is Maintenance and repair services for agricultural machinery and equipment • CPC classes and subclasses are based on the type machinery being repaired

8. National Accounts Concepts • Commercial and industrial machinery repair and maintenance are considered intermediate services in the U.S. accounts and are not included in estimates of final demand • The U.S. PPI for NAICS 811310 is not used by BEA as these intermediate services are not deflated in the U.S. National Accounts

9. Pricing Methods • As most services in this industry are customized, the U.S. PPI uses model pricing to fix the inputs used to produce the service. • The model prices incorporate aspects of the component pricing method as fees are derived based upon labor charges, charges for parts and any surcharges or discounts. • Short term maintenance contracts are priced with the direct use of prices for repeated services method.

10. Pricing Methods (continued) • Long term maintenance contracts (those more than two years in duration) typically include escalator clauses as more maintenance is needed as equipment ages. • The U.S. PPI sums the yearly prices as the escalator clauses can produce price increases that are not necessarily inflationary. • The summed price represents prices that are received from both old and new contracts.

11. Example - Long term maintenance contract

12. Quality Adjustment • When item substitution is necessary, cost data and previous pricing information is often available. • This allows the U.S. PPI to use the overlap method frequently. • When previous pricing information is not available, the items are not compared and the differences in prices are not shown in the index.

13. Evaluation of comparability with turnover/output measures • U.S. Census Bureau publishes a large amount of turnover data for this industry every five years. • The U.S. PPI currently only publishes data at the six-digit NAICS level.

14. Summary • The U.S. PPI has limited coverage in the Repair and Maintenance sub-sector – only ~19% of turnover. • Classification comparisons between NAICS 811310 and ISIC is not straightforward as this industry contains repair services that are included within all Classes of ISIC group 331. • Long term maintenance contracts present price measurement challenges.

15. Contact Information Bonnie Murphy Producer Price Index Program murphy.bonnie@bls.gov